Blockchain is a powerful new technology, but since it isn’t mainstream yet, it may be difficult to justify to your boss, who still unsure about a blockchain strategy. At Factom, we field lots of questions about blockchain’s practicality and usefulness for different industries. These questions below are some of the ones we see the most often. These may be things your boss wants to know about blockchain, or even things you want your boss to understand better.
1. What exactly is a blockchain? Why do we need it?
Blockchain is a shared ledger that is managed by a large network of computers, rather than one central party. And we need it!
This is a simplified question, but we see it often, especially in regard to how it differs from a database. Because the data inside a blockchain is not managed or owned by a central party (in the way a database is), it is extremely difficult to alter. A hacker would need to take control of 51% of the nodes running the blockchain, which is increasingly more difficult the larger the network becomes. Once data is shared on the blockchain, all parties with proper permissions inside the blockchain can see that data. Also, what goes in the blockchain stays in the blockchain… forever. This is the first time technology has let us write permanent data. Though that can sound like a scary idea, blockchain is most useful for cases when you need to establish data provenance – who created what document when, who currently owns the data, what changes were made, etc.
By this point, you’re probably thinking, “Why would we publish all our information for people to see?!” Great question. Instead of writing the data directly, Blockchains use cryptographic proofs (called “hashes”), one-way encryption that cannot be undone to create the original data. The hash provides proof that the data held privately in your system has never been altered in any way, and if the data is altered, it needs a new hash.
2. Why can’t we get by with a normal database? Why do we need a blockchain solution?
Because if our central database is compromised, we won’t know what was changed or taken. Current database tools are specifically designed to make it very easy to write and update data. But sometimes you really need the data to be stored, unchanged and exactly the way it was originally. Also here’s something that might surprise you – blockchain isn’t always the answer. A blockchain cannot replace a database. Blockchain is a great solution as an add-on solution to existing database technologies. Blockchain should be used if the data in your database needs to be preserved forever as evidence or if you need to collaborate with a number of different parties who all need to work from the same set of data.
The great thing about databases are how easy they make it to access the current state of a piece of data. But the not so great thing is that its history can easily be erased. Because databases are owned or managed by central parties, there is always a chance your data could be changed or overwritten without your notice or consent. Not with blockchain.
History cannot be rewritten in a blockchain. Because the data in a blockchain lives on forever, the data inside is immutable. The data’s timeline proves a piece of data’s existence in a specific form at a specific time that cannot be changed by anyone, not even the party who entered the data. Blockchain provides proof of the evidence on which you based your business process decisions, making it easy to validate how decisions were made. Entering your data (or its hash) into a blockchain reduces the liability of lost documentation, reduces audit time, and negates costly litigation.
You should consider using a blockchain instead of a database if: 1) there is anything less than 100% trust shared among parties, 2) the process would be improved by a shared set of data instead of passing data around. 3) there are multiple parties entering data, and 4) there is a need for restrictions, or certain parties are given specific permissions only.
3. Are our competitors using blockchain? Who else is using it?
Yes they are, even if they aren’t talking about it. Don’t get left behind.
Some of the leading companies advocating for and working on blockchain projects are IBM, Microsoft, JPMorgan Chase, Bank of America, Wells Fargo, and Intel. Blockchain has been hailed as the “fifth evolution of computing,” so you can assume everyone will be using blockchain in some way in the future, whether or not they know it yet.
All across the board, the world’s largest enterprise companies are experimenting with blockchain, determining the most efficient way to leverage its power, and preparing for blockchain’s integration across various industries. 2018 is the year of blockchain. It won’t be long before we see effects.
4. How will blockchain help us save on our bottom line? Will it save the company money?
Blockchain can save us money in the long run!
The best thing about blockchain is that it proves the process before you make a business decision. You don’t have to wonder how you will defend your business decision. Blockchain can prove you followed the correct procedures, reviewed the necessary material, and arrived at your decision appropriately. In the event you need to defend your decisions, you can ensure you have legitimate reasons supporting the permanent decision that was made, therefore dramatically reducing your risk of litigation.
The impact to your company’s bottom line varies. Depending on how much you are affected by time and money lost, and resources wasted, blockchain can have tremendous value to save your company money. Consider how much your company spends in litigation, regulatory or compliance costs every year. Usually the cost is simply trying to prove past documentation is true. The cost to keep up with compliance regulations alone is significant. Blockchain provides immutable proof that something did or did not happen in the past, effortlessly validating your business process decisions.
5. How much does blockchain cost?
Every blockchain is different. Some, like Bitcoin and Ethereum, are open source but have very high transaction fees.
Companies that work on an enterprise level scale should approach blockchain technology like any other software provider in their stack. Signing up for an annual license and then charged by volume. Obviously, these are where larger negotiations take place and can be adapted to each customer’s specific needs.
6. Do we need blockchain developers? Who even knows how to do this?
You do not need blockchain developers to do blockchain.
7. Why would I use blockchain software if I collaborate with people not using blockchain software?
You can use blockchain software that integrates directly with your existing software. It can be so seamless, in fact, that the outside observer wouldn’t even know you had a blockchain solution underpinning your process. You do not need other collaborators to your system to use the company’s blockchain. You can store data and documents privately behind your company’s firewalls, and store the proof on the blockchain. Having a blockchain would simply be for your company’s benefit, not necessarily a group of independent parties. This does not put you at a disadvantage over your collaborators, but gives you a bigger advantage because you can prove your decisions.